CALGARY - As a junior energy explorer comes closer to finding out whether North America's next big shale oil find lies beneath the western coast of Newfoundland, concerns are being raised about the environmental effects fracking could have in the remote region.

Shoal Point Energy Ltd. (CNSX:SPE) spent the winter holidays hammering out a farmout deal with Black Spruce Exploration, a subsidiary of Foothills Capital Corp., that will enable as many as 12 exploration wells to be drilled over the next few years in the Green Point shale.

After that, the companies aim to have a better idea of how much black gold can be coaxed out the narrow stretch of rock — and hopefully attract deeper pocketed investors to help scale up the discovery.

"It's not the big long-term solution yet," Shoal Point chief executive officer George Langdon said in an interview.

As in other shale formations throughout North America, tapping the Green Point will require hydraulic fracturing, or fracking, to unlock the resource. The process involves injecting a mixture of water, sand and chemicals underground at high pressure in order to crack the rock.

Fracking has unleashed huge supplies of natural gas and oil from shales across the continent, but it also brings with it controversy over its potential environmental effects.

Bob Diamond, chair of the Bay St. George Sustainability Network, said fracking has become a hot topic in his community.

Less than a dozen people attended his group's first meeting on the issue, but that number swelled to 60 for a second gathering last week.

"We're not against oil or oil development or exploration," Diamond said from Stephenville, N.L.

"We want to ensure that it's not going to have any significant impact on our health or our environment."

In addition to the safety of the fracking process itself, Diamond said he's also worried about all of the trucks and heavy equipment moving around the area and the safety of drilling in a coastal region prone to wild weather.

He also wants to make sure that other industries, such as tourism and fisheries, aren't harmed.

"I'd like to see a moratorium on gas and oil fracking," said Diamond.

"In Newfoundland, there's actually no kind of regulatory structure in place yet to deal with fracking, which alarms a lot of people."

He said recent fracking guidelines set out by the New Brunswick government seem to strike the right balance, and he'd like to see his province follow suit.

David Murray, CEO of Foothills Capital Corp., said although fracking is new to western Newfoundland, the technology has been around for a long time and has been safely used around the world.

"We know that people will be concerned about it because they're not as experienced in this area as to what's involved. But do we see any real technical issues here? The answer is no," he said.

He said there are no groundwater sources at risk from the drilling.

Shoal Point, a small Toronto-based outfit, set up a data room last summer where potential partners could access company information. Firms from around the world — some large and some small — took a look at what Shoal Point had to offer.

Langdon had expected the potential size of the Green Point — one estimate pegs it as having 23 billion barrels of oil in place — would be enough to lure a big-name partner.

But so far no major firms have been reeled in, likely because there is still a lot of drilling to be done before they're convinced those barrels can be produced economically.

"I think that it's big enough now and they should be looking at it," said Langdon.

"It's a new area. Maybe not many people are as familiar with the geology as we are. In any case, that's the way they look at it and I think the time will come when we'll be very, very interested in it."

Black Spruce brings shale oil expertise to the table and can help take operating costs off of Shoal Point's shoulders.

"These guys were having a tough time even though all the geological information seemed to be outstanding," said Murray.

Another Foothills subsidiary works in the Bakken shale, a massive oil deposit centred in North Dakota that's producing enough oil to drastically alter the North American market.

Black Spruce is arranging with other Foothills affiliates to bring drilling equipment and materials to the remote area of Newfoundland, where so far it's been costly and logistically difficult to drill.

"We felt that we could provide a solution for these guys that many other people couldn't, where they'd have to go to many different places to shop," said Murray.

In the first phase of the partnership, Black Spruce has agreed to drill one well on each of Shoal Point's three blocks for a 40 per cent interest.

Black Spruce will also have the option to drill a fourth well in a location of its choosing, enabling it to earn a 50 per cent interest.

Once the optional well is drilled, the companies can choose to enter their deal's second phase, which involves drilling up to eight more wells, giving Black Spruce a 60 per cent interest.

The top priority will be to finish off a well on the southernmost block, where Shoal Point's lease has already expired. The regulator, the Canada-Newfoundland Offshore Petroleum Board, has been "patient" in allowing Shoal Point time to complete the work this year.

"As the first company exploring for an unconventional play in offshore Newfoundland, they've given us a lot of discretion and flexibility to prove that this could be a commercial venture. And we are very appreciative of that fact," said Langdon.

Once Shoal Point and Black Spruce have proven that oil can be produced from the rock, they can apply to the board for a significant discovery licence.

Shoal Point is by far the biggest landowner in the Green Point, having amassed more than 280,000 hectares across its three blocks. Shoal Point owns 100 per cent of two of those blocks and 80 per cent of another.

Shoal Point's activity so far has been at the south edge of the formation, which stretches north along the coast well past Gros Morne National Park.

The Green Point extends into the offshore, but the wells are being drilled from on land into the formation.

"Every time we turn over a stone, things look better on the technical side. We're very, very happy about that," said Langdon.

Murray said there's "no question" the Green Point holds a lot of oil, but it remains to be seen how much of it can flow to the surface on its own steam.

"There's only one way to determine that at this point from the technology that we have today, and that's to actually drill."

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Hydraulic Fracturing: The Good And The Bad

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Estimates by the United States Department of Energy put the number of recoverable barrels of shale gas at around 1.8 trillion. To put that into perspective, Saudi Arabia is estimated to have roughly 2.6 trillion barrels of oil reserves.
Christopher Booker writes for The Telegraph that there are enough world reserves to "keep industrialised civilisation going for hundreds of years"

A blog post by the Natural Resource Defense Council explains that "Opponents of such regulation [of fracking] claim that hydraulic fracturing has never caused any drinking water contamination. They say this because incidents of drinking water contamination where hydraulic fracutring is considered as a suspected cause have not been sufficiently investigated."
It then goes on to list more than two dozen instances of water pollution to which hydraulic fracking is believed to have contributed.
A new waterless method of fracking has been proposed, but environmentalists are skeptical.

Methane is a greenhouse gas and major component of shale's carbon footprint.
Cornell Professor Robert Howarth said about a study he conducted, "Compared to coal, the footprint of shale gas is at least 20 percent greater and perhaps more than twice as great on the 20-year horizon and is comparable when compared over 100 years."

Researchers at MIT found that replacing coal power plants with natural gas plants could work as part of a plan to reduce greenhouse emissions by more than 50 percent.

Several earthquakes both in the U.S. and abroad have been linked to the hydraulic fracturing process.
One British company, Cuadrilla Resources, admitted in a report that its hydraulic fracturing process well "did trigger a number of minor seismic events."

The industry currently employs more than 1.2 million people in the U.S., and the Department of Energy estimates that natural gas resources have increased nearly 65 percent due to fracking, according to a TreeHugger graphic.
Additionally, the gas industry accounts for about $385 billion in direct economic activity in the country, a Nature piece reports.

Fracking is exempt from the Safe Drinking Water Act of 2005, thus allowing companies to conceal the chemicals used in the process.

Former chief of staff to President Clinton and former head of the Center for American Progress John Podesta says natural gas can serve "as a bridge fuel to a 21st century energy economy that relies on efficiency, renewable sources, and low-carbon fossil fuels."

The fracking process can require around five million gallons of water.
In some cases less than a third of that water is recovered.